Bernanke asks Congress to get serious about 'unsustainable' fiscal path

Sen. Kelly AyotteKelly Ann AyotteAudit finds US Defense Department wasted hundreds of millions of taxpayer dollars US sends A-10 squadron to Afghanistan for first time in three years No, the US did not spend million on a gas station in Afghanistan MORE (R-N.H.) had a simple question Tuesday for Federal Reserve Chairman Ben Bernanke: What keeps you up at night?

Bernanke responded with the federal deficit, which he said is on pace to become "unsustainable" in 15 to 20 years — unless financial markets lose confidence in U.S. policymakers before that.

"We clearly need some major changes in our fiscal planning," he told members of the Senate Budget Committee, calling on them to act "as soon as possible" to address the deficit.

While imploring lawmakers to take bold action, the head of the officially nonpolitical central bank refused to weigh in on the central standoff dominating the topic — higher taxes versus reduced spending.

Bernanke acknowledged the "deep philosophical debate," but did not pick a side.

"That's something Congress is going to have to work out," he said. "That's what people elected you to do."

He acknowledged that both lawmakers and the general public face tough decisions when it comes time to tackle the deficit, but said they had little choice but to get serious about it.

"Everyone wants a lower deficit, but no one wants to lose their own program, or their own tax cut," he said.

"I mainly try to urge Congress to make sure that they're looking at both sides so there's a balance between the two," he added.

Bernanke has long pressed Congress to address the deficit, but has warned against any extreme immediate measures that could endanger the fragile economic recovery. Despite recent optimism buoyed by strong data on the labor market, he still characterized the recovery as "frustratingly slow" and "sluggish." He added that any number of potential shocks, such as an oil crisis or a deepening of the European debt crisis, threaten to throw the fledgling recovery off the rails.

"We still have a long way to go before the labor market can be said to be operating normally," he cautioned.

The Fed chairman added that while it would be good for the economy if lawmakers began tackling the deficit, they also have a major role to play in terms of keeping the current recovery ongoing. He warned that a number of looming issues on Capitol Hill could endanger that comeback if handled poorly, including the pending expiration of the Bush tax cuts, the fight over automatic defense sequestrations and the ongoing debate over extending the payroll tax break and unemployment benefits.

Just the appearance that Congress is taking the issues seriously and working towards a real solution could do wonders for the financial markets, Bernanke said. He noted that when Standard & Poor's issued its historic downgrade to the nation's credit rating in August, the agency said it was due primarily to concerns about policymakers, and not the current state of the government's finances.

"What they cited ... was the inability of Congress to actively work together to achieve meaningful reductions," he said. "A strong demonstration by Congress and the administration that they understand these issues and have a plan for attacking them, I suspect, would go a long way."

However, Bernanke was not the only one at the hearing second-guessing prior errors.

Sen. Jeff SessionsJefferson (Jeff) Beauregard SessionsUnder pressure, Trump shifts blame for Russia intrusion Overnight Tech: Judge blocks AT&T request for DOJ communications | Facebook VP apologizes for tweets about Mueller probe | Tech wants Treasury to fight EU tax proposal Overnight Regulation: Trump to take steps to ban bump stocks | Trump eases rules on insurance sold outside of ObamaCare | FCC to officially rescind net neutrality Thursday | Obama EPA chief: Reg rollback won't stand MORE (R-Ala), the ranking member on the panel, opened the hearing by throwing some barbs towards the Fed. Citing recently released transcripts of 2006 meetings of Fed officials that revealed they did not anticipate the breadth and depth of the imminent housing crisis, Sessions cast doubt on the Fed's ability to prognosticate on the economy. He was quick to point out that Timothy Geithner, now President Obama's Treasury secretary, was among those officials failing to grasp the looming danger.

"We cannot always be sure that those in positions of leadership see the problem clearly," he said. "We're not always as good at predicting the future as we'd like."